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Is Qantas worth $4.65 per share?

We examine why UBS remains bullish on Australia's premier airline, Qantas.

Qantas share price rises, Virgin sale process progresses

The Qantas (QAN) share price has rallied strongly this week, as equity markets trend bullishly and with the company on Thursday announcing that it would be significantly increasing its domestic and regional flying capacity between June and July.

Specifically, the airline said that these ‘additional services will see capacity increase from 5 per cent of pre-Coronavirus levels, to 15 per cent by the end of June. This equates to more than 300 more return flights per week.’

Further out, by the end of July, Qantas expects its domestic flying capacity to be at 40% of pre-coronavirus levels.

Investors responded bullishly to this news on Thursday, bidding the stock 7.16% higher during the day. Qantas continued to be bid higher on Friday, last trading up 3.18% – to $4.630 per share.

Reflecting on the current enviroment, the Qantas CEO, Alan Joyce, said:

‘We know there is a lot of pent up demand for air travel and we are already seeing a big increase in customers booking and planning flights in the weeks and months ahead.’

Other industry developments

Elsewhere, Virgin Australia this week further narrowed its short-list of potential buyers to Bain Capital and Cyrus Capital Partners, with administrators saying they expect to have a binding agreement for the sale of Virgin Australia by 30 June.

As part of Virgin’s latest announcement, the company’s administrators stressed that 'we are in a strong place when it comes to delivering the best possible commercial outcome for all creditors, and to see a strong and sustainable Virgin Australia emerge from this process.'

In response to this progress, UBS analysts noted that ‘In our view, a LCC [low cost carrier] only offering or an outcome where the new carrier doesn't materially change things would both be positive for Qantas.’

Moreover, while the investment bank flagged that 'irrational behaviour from a second carrier is possible, Qantas has bought unit costs down materially since 2014 and can leverage its scale and loyalty program making this an unlikely strategy in our view.'

Irrational behaviour or not, with UBS analysts confident in the pent up demand for air travel, the investment bank has retained its positive outlook on the blue-chip airline, retaining a Buy rating and a 12-month price target of $4.65 on Qantas.

In step with the airline’s reduced business activity as a result of Covid-19, UBS is currently expecting Qantas' FY20 revenue to come in at $12,447 million (FY19 revenue: $17,966 million), against a FY20e net loss of $1,001 million (for reference, in FY19 QAN delivered net earnings of $899 million).

How to trade Qantas

Can this rally last or will it be short-lived? Trade accordingly. You can use CFDs to trade Qantas and other airline and travel stocks – LONG or SHORT through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Qantas, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘Qantas’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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